On 4 November 2015, the Swiss Federal Council adopted the dispatch on the Financial Services Act (FinSA) and on the Financial Institutions Act (FinIA). Both acts are the result of a project to prepare cross-sector regulation of financial products and services and their distribution. In those acts, existing supervisory provisions are being merged and aligned in a cross-sector manner supplemented by new regulations.
The aim of the regulation project is, in addition to the improvement of client protection, to facilitate international market access for Swiss financial service providers. The principal actors of the draft legislation are the Federal Department of Finance in co-operation with the Federal Department of Justice and Police, and the Swiss Financial Market Supervisory Authority FINMA. The Swiss Federal Assembly is expected to deal with both acts next year.
Once entered into force, these acts will have a substantial impact on all actors providing financial services in Switzerland or for clients in Switzerland. As a consequence, it will also be relevant for Chinese financial service providers. The following summarizes the central aspects of the new regulation.
The FinSA governs the requirements for providing financial services and offering financial instruments. The FinSA builds on existing supervisory legislation. Changes are intended in the following areas:
Foreign financial service providers who provide financial services on a professional basis for clients in Switzerland must observe the same code of conduct for their activities in Switzerland as is observed by Swiss providers (see below).
The relevant client advisers of foreign financial service providers that are not licensed in Switzerland must be entered into a register of advisers. Thus, this new regulation of cross-border activities into Switzerland is expected to be more restrictive than the rules currently in force.
The FinSA introduces client segmentation. The intention is a threefold division of retail clients, professional clients and institutional clients – aligned with the protection level – in connection with a dynamic component that would provide the possibility of switching between the segments (opting system). Dependent on the qualification of the client, differentiated duties to inform and to disclose are imposed on the providers of financial services. The extent of the financial service providers’ clarification duty (know your customer) ranges from no assessment (execution only – as well as reverse solicitation transactions), through assessment of appropriateness, up to execution of a suitability assessment (modular structure).
Only individuals with sufficient basic training and continuing professional development shall be admitted as advisers and intermediaries in the financial services sector. Further, legislative regulation concerning remuneration received from third parties (especially retrocessions) is provided. Prospectus requirements are extended to all equity securities and debt instruments and are adapted to international standards; simplifications are intended for SMEs. When financial instruments are offered to retail clients, the information channels should be supplemented by a key information document. The planned exceptions from the prospectus requirements, which also apply to the crowd lending method of financing, could help strengthen Switzerland as a financial tech centre.
From a procedural perspective, the dispensation of advance costs of litigation and securities is provided to improve the enforcement of claims. Very controversial instruments which had been provided in the consultation draft are eliminated altogether. The regulation of collective legal enforcement must not be limited to the financial services providers, which is why its implementation must be assessed separately and in a general manner.
The FinIA governs the requirements for operation as a financial institute and is a uniform law for all the financial services providers that are involved in the asset management business.
The FinIA introduces various categories of supervised financial institutes that are subject to differentiated regulation (authorization chain).
Different types and degrees of supervisory intensity as well as regulation requirements are provided for – depending on the status of the financial institute. New terms to be introduced are managers of individual assets (independent asset managers), managers of collective assets (managers of collective investment schemes) as well as securities firms (formerly securities dealers).
The FinIA will make independent asset managers subject to appropriate supervision and thus will result in a significant increase in the number of supervised entities and persons. The supervision must be executed by one or several semi-governmental supervisory organizations which will have the powers to grant authorization and pass sanctions. During the consultation, it was suggested that alternatively FINMA could directly execute that supervision. Asset managers that have not been supervised so far are not subject to supervision if they have been carrying out their activities for at least 15 years and do not accept new clients (grandfathering clause).
As opposed to the draft consultation paper, the banks shall continue to be governed by the Swiss Banking Act. The latter shall be adjusted to the prerequisites of the FinIA.
The tenor of the first reactions in Switzerland is divided. The majority particularly welcomes the elimination of the controversial instruments of legal enforcement. One of the concerns is, inter alia, a disadvantaging of small- and medium-sized providers and higher costs for the clients.
A final assessment will only be possible after the parliamentary consultation. This should essentially be guided by the international standards without introducing an additional “Swiss finish”. A political question is whether Switzerland will be able to achieve international market access by introducing the two new acts.
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